Thriving Somali Business and the Need for Government
There has been ongoing discussion—and debate—about Somalia's economy in the absence of a central government. Some studies argue that Somalia’s economy has actually improved since the fall of Siad Barre’s regime, primarily because of the absence of a predatory state. But what does this mean? Does it suggest that Somalia doesn’t need a government? And if it does, what kind of government would work?
Road to Anarchy
Somalia has been without a central government since Siad Barre was overthrown in 1990. In the northwest and northeast, regional governments—Somaliland and Puntland—have been established. However, the southern regions of Somalia, particularly south of Galkayo, lacked a central authority for 15 years, with warlords and tribal chiefs filling the vacuum. Recently, the Islamic Courts Union gained control over much of Southern Somalia, ousting the warlords.
The international community has made numerous attempts to establish a central government in Somalia, but these efforts have repeatedly failed. The current government remains weak and appears to be following in the footsteps of its predecessors.
Better Off Stateless?
Some argue that Somalis are better off without a government. In his paper “Better off Stateless,” Peter T. Leeson attributes Somalia’s improved economic situation to the absence of a predatory state, which had stifled entrepreneurship for decades. Somalia’s economy today thrives on private business and ownership.
Researchers Tatiana Nenova and Tim Harford explore this in their study, “Anarchy and Invention,” noting how Somali entrepreneurs have creatively used “foreign jurisdictions or institutions” to manage certain tasks. For example, hawala businesses—Somalia’s informal money transfer system—are registered in Dubai. Somali businesses rely on networks of trust, often rooted in the tribal system, to secure property rights and enforce agreements.
The Role of Hawala
The hawala system is perhaps the most critical sector in Somalia’s economy. Originating in the 1980s as a response to government restrictions on banking, hawala became the primary method for Somalis abroad to send money home. Today, this trust-based system handles over $1 billion annually—likely even more. All it takes to send money is a name, location, and tribe, and the recipient receives it the next day almost anywhere.
During a visit to Dubai, where most hawala companies operate, I saw their ingenuity firsthand. Using tools like MSN Messenger, hawala representatives coordinate exchange rates, transactions, and communication across countries. This system is efficient and seamless, highlighting Somali adaptability. Hawala companies now offer expanded banking services and invest in various sectors of the economy.
Somali Business Ingenuity
One major advantage Somali traders have is their mobility. Many entrepreneurs move wherever there is opportunity. For instance, I know a businessman who began in Kenya, expanded to Dubai for wholesale, and then opened a manufacturing branch in Indonesia. He is now considering moving to China due to lower costs. Somalis are active in sectors like real estate, textiles, logistics, retail, telecommunications, and oil throughout Africa. In fact, Somalia boasts some of the best telecommunications systems in Africa.
Does Somalia Need a Government?
For most of its history—spanning over 4,000 years—Somalis lacked a central government, organizing themselves around tribal sultanates and kingdoms. Islam spread peacefully in Somalia, leaving no recorded conflicts with other Muslim entities. Tribes historically united against external threats, such as the Portuguese or Ethiopians. The question remains whether this decentralized system could function in modern Somalia.
In his book, “The Law of the Somalis,” Michael van Notten describes Somali tribal traditions and customary law, arguing that these systems can replace formal governance to maintain stability. He contends that foreign models of government, which divide people into rulers and the ruled, lead only to chaos in Somalia. Instead, he suggests strengthening Somalia’s tribal laws and economy. Indeed, Somaliland, Puntland, and the Islamic Courts Union have all used tribal systems to establish stability in their regions.
However, I believe Somalia needs a government—one that is small and decentralized. The tribal system should be recognized and integrated into the constitution in a limited but defined role. A government is essential for providing public services such as healthcare, education, resource management, and welfare.
Challenges Ahead
The Somali business community largely agrees that a government is necessary. Despite economic ingenuity, there is a pervasive sense of instability among ordinary citizens, even in relatively stable regions like Somaliland and Puntland. However, any future government must be created by Somalis and tailored to Somali realities. Past attempts to impose foreign models have resulted in weak, dysfunctional administrations.
The current political scene is dominated by three problematic groups: warlords, corrupt officials from Siad Barre’s regime, and clan representatives. These actors are deeply distrusted by the Somali people. Moreover, the tribal division of political positions—such as alternating the presidency and prime ministership between Hawiye and Darood—has only led to gridlock, bribery, and conflict. Clan elders, who hold significant influence, are not formally recognized in the political system, further exacerbating governance issues.
Conclusion
While Somalia’s entrepreneurial spirit has flourished in the absence of government, the country needs a functional, Somali-driven administration to ensure stability and development. The road ahead is fraught with challenges, but with a decentralized, inclusive government, Somalia can build on its resilience and ingenuity.
5 comments:
This is a very fine article (post) Abdurahman, very informative. I believe that a central government empowered by the will of the people and a constitution and the rule of law are indespensable for a modern state. It is great that so many Somali businesspeople have been able to startup and operate without a central government in place, but just think about the loss of revenues from taxes and duties and fees that the country has lost over the past X decades because these businesses have been forced to operate from abroad and/or payoff dubious individuals within the country in order to do business there. Would you care to put a price tag on those lost revenues? Billions of $$$ ???
The country's infrastructure and public services (health, transportation, education, communication, security, etc. etc.) that the Somali people so desperately want and need are either non-existent or in need of repair as a result of that loss of revenue... and of course as a result of the destruction caused by the ongoing conflicts between tribes and clans and warlords that plague the poor country to this very day.
Another argument for the need for a central government is how do other countries interact and support Somalia when no central authority is in charge? How would Somalia be able to receive needed development assistance and make trade and security agreements with neighboring countries and the wider world?
In my opinion yes Somalia needs a central government, and Somalia needs leaders (political, business, and civic) that have the interests of the Somali people front-and-center in everything that they do. This is what has been missing in Somalia for so very long, national leadership that is acceptable and respected by all citizens of the country and the world at large.
I'll get back to our open comment thread re: Lebanon at Chippla's blog later. Super busy at the moment. Cheers!
Now this is one very interesting and informative write-up. I learnt a great deal from it. Though I had previously heard of the hawala money transfer system, I hadn’t a clue how it operated. It’s also good to see that despite the lack of a central government, the Somali telecom sector is doing fairly well.
However, in agreement with both yourself and Black River Eagle, I do think that Somalia desperately needs some form of central government. This becomes very important when Somalia needs to deal with the outside world.
While Somalia appears to be working to a certain extent, the only functional parts of its economy appear to be those driven by entrepreneurs (business people). Entrepreneurs are only interested in areas of the economy that bring huge profits into their pockets. This means that areas such as public healthcare and education suffer without the presence of a central government.
Somali people had an oppressive, backward government for a long time so the war - with it's ills - led to fundamental changes in Somali culture. Commerce and trade flourished because of the absence of corruption and nepotism. Another positive change was the development of cities, Somalis invested and built Mogadishu only; after the war, people went back to their cities of origin and invested in them.
Outside of Somalia, particularly in Africa, Somalis are one of the strongest business communities. All these changes were possible because of the absence of restriction and counter-productive measure by the government.
Future Somali governments should focus on public infrastructure/services which can only be maintained by a government and to attract Somali entrepreneurs from inside and outside the country by maintaining minimum market intervention similar to what's now in place.
yes Somali business's are doing well thanks to Dubai main financial ally. On the other hand there more Somalis starving than doing business. The fact is that powerful tribes are dominating the market and you must be willing to do business them in return for protection. the business men of Somalia are paying large amount of money for arms to their tribes.
There have been positive changes but not for the majority of Somalians. any ways it is too complicated the situation in Somalia........
Those businesses in Somalia that are successful should consider expaning to neighbouring countries. This will enable them to access more potential customers and hence make greater profits. This is as Somalia's population is estimated at around 8 million people, many of whom are nomads.
Otherwise these companies should diversify and perhaps enter different markets altogether as a branch of their existing companies. They could enter industries offering different products to different markets (within Somalia). They are part of the few who have the financial capital and knowledge to further develop the country's private sector, which through taxes helps government(?).
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